Feds: California Firm's Cancer Claim Lured Investors

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Federal regulators on Thursday charged that a California biotech company lured 300 investors in 25 states with bogus claims that it was on the verge of curing cancer.

The Securities and Exchange Commission said the claims by Rancho Cordova-based Telomolecular Corp. attracted $6.5 million from small investors in 2006 and 2007.

"It attracted investors who not only wanted to make money, but wanted to do something good for humanity," said Michael Dicke, associate director of the commission's regional office in San Francisco. "You had all these individuals willing to pour their hard-earned money into this company that was going to cure cancer, and it just wasn't true."

The company and two former executives agreed to settle the commission's complaint without admitting or denying guilt.

The complaint filed Thursday in Sacramento federal court said company founder Matthew Sarad, 35, of Folsom lied when he told investors that his startup firm had $10 million in backing from an investment bank. Sarad also falsely told investors that a larger, established firm was interested in buying the company, the complaint said.

In fact, the company had made $100,000 since its inception in 2005, mostly from selling cosmetic skin cream over the Internet, the commission said. Also, while the company claimed it had employed 50 scientists, it had employed only five at its peak, the claim said.

"I am extremely proud of the cutting edge medical work I did while at Telomolecular," Sarad said in a statement issued through his lawyer. "In the current heightened regulatory environment company executives must be much more diligent about the words they chose to use to express their holdings and prospects to investors."

The commission said another former executive, Jeremy Jobe, 31, of Dallas, sold $2.5 million in stock without being registered as a broker. Instead of the usual practice of selling stock through accredited dealers, "they had people dialing for dollars from the company offices, selling stock," Dicke said.

Both Sarad and Jobe left the company in May, when the biotech company brought in new management.

The current executives and scientists believe there may yet be promising developments from the company's research, said Gerald Niesar, a San Francisco attorney who represented the company.

While the company consented to having its securities registration revoked and to make no further unsubstantiated claims, Niesar noted the commission did not require Telomolecular to pay a financial penalty.

"That will let the company go forward and hopefully rescue some value for the shareholders," Niesar said.

Sarad agreed to pay a $100,000 penalty, avoid future securities law violations and to not serve as an officer or director of a public company for five years. Jobe agreed to follow securities laws and to have no association with a securities broker or dealer for three years.